While not going so far as to say “recession, what recession?” as Jim Callaghan might have done in 1979, Alistair Darling’s 2010 Budget was heavily basted with optimism.
Only a political idiot would be surprised that the speech contained a heavy element of electioneering and included a couple of juicy “soak the rich” bones for Labour’s class war warriors.
Looking beyond the headline grabbers – a £2.5 billion stimulus package for small businesses, temporary abolition of stamp duty for the majority of first-time home-buyers, a swingeing rise in duty on rocket fuel cider and a rocket fired in the direction of Tory benefactor Lord Ashcroft’s tax haven – there was precious little to spook the financial markets.
London’s bellwether FTSE 100 shares index even managed to struggle into positive territory (up 4.3 points at 5677.9) after traders digested the fact that the public finances seem to be in better shape than feared and there were no blatant give-aways.
What most people suspect, of course, is that the real Budget will come after the General Election.
Mr Darling, so popular opinion has it, could afford to take a relatively relaxed view of the public finances on the grounds that this was likely to be his – and Labour’s – last Budget statement for some time.
The Chancellor scaled down his forecasts for the budget deficit in the current and next fiscal years, predicting that public sector net borrowing in 2009/10 would come in at £166.5 billion, or 11.8 per cent of GDP compared with a December pre-Budget report forecast of £177.6 billion.
In 2010/11, borrowing is expected to come in at £163 billion compared with the earlier forecast of £176 billion.
With unemployment rising by less than expected and revenues holding up reasonably well, the downward revision of borrowing was not unexpected.
Mr Darling stuck to his December forecast of economic growth of between one and 1.5 per cent this year, rising to three to 3.5 per cent next year.
Which was a much more optimistic forecast than most economic commentators are prepared to give.
“The recovery has begun, unemployment is falling and borrowing is better than expected,” Mr Darling said.
“The choice before the country now is whether to support those whose policies will suffocate our recovery.”
That was a riposte to the Conservatives, who yesterday repeated calls for tougher action against public debt to be taken now. Whether a Tory chancellor (more likely to be Ken Clarke rather than George Osborne) will be able to put his money where his mouth is come the summer is now moot.
Most pre-Budget opinion polls indicated a hung parliament, something that really would spook the markets and which could produce the much-feared cut in the country’s prized AAA investment rating.
The Debt Management Office, the body that auctions off the Government’s paper, was said by Reuters last night to have predicted that Britain will sell £187.3 billion of bonds in the 2010/11 fiscal year.
That is a figure in line with forecasts, and well below the £225 billion shifted this year. A Reuters poll on bond strategists predicted on Wednesday that yields on British government bonds will rise sharply this year but there is only a slight chance the country will lose its top credit rating.
“The path of the deficit is a bit lower over the next four years. It’s inching in the right direction, Brian Coulton of ratings agency Fitch told Reuters.
Fellow ratings agency Standard and Poor’s also saw no reason to change its assessment.
Summing up the reaction of the foreign exchange market, Phil McHugh, a dealer at Currencies Direct, said “sterling was unmoved by a highly political Budget which highlighted the clear policy differences between Labour and the Conservatives over how and when to institute public spending cuts.”
Despite the Chancellor’s downward revision, government borrowing “remains exceptionally high and there are no clear plans on how the deficit will be cut”.
“Realistically the markets did not expect clarity on cutting the deficit, instead there is far more interest in the effect of this Budget on Labour’s prospects in the polls – a hung parliament being a worst-case scenario for sterling,” Mr McHugh said.
Responding to Mr Darling’s prediction of three per cent growth next year, economist Howard Archer of IHS Global Insight said it was hard to see how such a robust performance is to be achieved.
“It really is hard to see where growth of this magnitude will come from given the fiscal squeeze that will have to come,” Dr Archer said.
He called it “a highly political Budget” before concluding: “The suspicion is that this will not go down in history as an election-turning Budget.”
* Budget At A Glance
* Mr Darling will stick to plans to halve the deficit within four years.
* Tax on bankers’ bonuses raised £2 billion in 2009/10, twice as much as forecast.
* Guarantee that everyone will have access to a bank account, creating a million more bank customers.
* Work or training for all under-24s out of work for six months.
* Six more months of mortgage support for the unemployed.
* Stamp duty limit to double from £125,000 to £250,000 from tonight, funded by an increase to five per cent on £1 million-plus homes.
* ISAs: Limit to rise from £7,200 to £10,200 and will increase thereafter annually in line with inflation.
* Economy growth forecast lowered for 2011 to 3-3.5 per cent.
* Inflation next year forecast to be back to 2 per cent.
* Tax receipts better than forecast in the first quarter.
* Borrowing this year should now be £11 billion lower than forecast, down from £178 billion to £167 billion.
* Debt expected to be £100 billion lower by 2013-14 than forecast.
* Deficit will be halved over a four-year period.
* No further announcements on VAT, income tax or insurance.
* Duty on beer, wine and spirits to rise two per cent. Tax on cider increased by 10 per cent above inflation from midnight on Sunday.
* Tobacco duty increases today by one per cent above inflation this year, then two per cent.
* Inheritance tax threshold frozen for four years.
* Departments will publish details about how to achieve £11 billion of new savings.
* Total of 15,000 civil servants relocated.
* From October next year, most expensive properties excluded from housing benefit scheme.
* Progress on £16 billion asset sales.
* RBS and Lloyds to provide £94 billion of new business loans.
* New growth capital fund to provide capital for fast growing firms.
* Business rates cut for a year from October – meaning 345,000 will pay no rates at all.
* Tax allowances for entrepreneurs and no increase in capital gains tax.
* £100 million to repair roads and £285 million for motorways.
* £2 billion green investment bank for private sector energy investment.
* Support to develop electric cars.
* Help for creative sectors.
* Universities must make efficiency savings. £35 million for University Enterprise Capital Fund. £270 million for university modernisation.
* Tax information agreements with Dominica, Grenada and Belize.
* £4 increase in child tax credit.